Volkswagen will invest $193 billion in electric cars and software

BERLIN – Volkswagen said Tuesday that it would spend $193 billion on software, battery factories and other investments as it aimed to make every fifth vehicle it sold electric by 2025.

The automaker, the world’s second biggest after Toyota, will also focus on expanding its presence in North America, where it has struggled for years, and becoming more competitive in China, one of its most important markets, said Oliver Blume, Volkswagen’s CEO.

Blume laid out a 10-point plan for helping Volkswagen pivot to electric vehicles, a path it began in earnest when it effectively abandoned diesel technology after an emissions cheating scandal in 2015. The plan’s centerpiece is investments totaling 180 billion euros, or about $193 billion. Two-thirds of that sum will be channeled into producing battery cells, developing software and shoring up supply chains of critical raw materials.

“For me, it is important that we have a clear orientation of where we are going,” Blume told reporters, adding that 2023 would be “a decisive year” for the company. It is his first as CEO; he took over in September from Herbert Diess, who aggressively pushed Volkswagen to embrace electric cars but was forced out after just four years because of disagreements with the company’s board.

Blume hopes to use some of the proceeds of a 2022 initial public offering of Porsche, where he is also CEO, to strengthen Volkswagen’s electrification strategy. The listing brought in 43 billion euros.

Volkswagen reported a net profit in 2022 of 15.8 billion euros, an increase of 2.6% from the previous year, as supply chains disrupted by the coronavirus pandemic began to normalize.

Russia’s invasion of Ukraine last year caused energy prices to rise and contributed to high inflation, especially in Germany. Addressing those challenges, while balancing the demand for combustion-engine vehicles as the company pivots to electric vehicle production, will be the main focus in Europe, Volkswagen said.

“We must transform ourselves into a technology and mobility services group,” Arno Antlitz, Volkswagen’s chief financial and operating officer, said at the Tuesday media event. “We need to focus on our platforms, such as our hardware for battery-powered electric vehicles, a unified software stack, batteries, mobility, autonomous driving.”

In the short term, Volkswagen will continue to produce combustion-engine cars, which generate profits that the company needs to pay for the transition to battery-powered vehicles. In 2022, Volkswagen sold 8.2 million cars and trucks.

Despite the German government’s call for companies to diversify their operations in Asia, pivoting away from China, Volkswagen is continuing to invest in the country in partnerships with local companies.

Volkswagen is the leading producer of combustion-engine vehicles in China, but has lost ground to domestic carmakers in the fast-growing market for electric cars. Last year, Volkswagen introduced an “in China for China” strategy that it plans to expand, including developing technology and software specifically for consumers there, including in-car karaoke.

The automaker’s problems in North America are somewhat different. After years of trying to become a bigger player in the United States specifically, it remains far behind U.S. automakers like General Motors and Ford Motor and Asian companies like Toyota and Hyundai.

Volkswagen retooled its plant in Chattanooga, Tennessee, last year to begin producing electric vehicles, and it now produces the ID.4 sport utility vehicle there. On Monday, Volkswagen said it had chosen a site in Ontario, Canada, for a new battery plant. And earlier in March, the company said it would put up a factory in South Carolina to build pickup trucks and SUVs that would be sold under the moribund Scout brand.

In Europe, a key element of the company’s focus includes its first battery cell plant, a 2 billion euro factory that is rising out of a field in Salzgitter, Germany, near the company’s headquarters in Wolfsburg. The new plant sits behind a site where Volkswagen has been building engines for more than 50 years and is slated to become the main provider of battery cells for the automaker.

This article originally appeared in The New York Times.